Exchange Rate Changes Impact On International Direct Investment

Foreign Direct Investment (hereinafter referred to as"FDI") has promoted, capitalized and energized the development of China's economy since the reform and opening. In company with the expanding economy and the enhancement of economic strength of our country, the continual rising of RMB effective exchange rate had some effects on the investment choices of numerous entities of investment (Multinational Corporation). The rising of RMB effective exchange rate increased the cost of investment of Multinational Corporation, and brought chances for their long-term investments. In addition, along with the accumulation and development of China's enterprises, they went out of the country and made Overseas Direct Investment (hereinafter referred to as"ODI"). Due to the rising of RMB exchange rate, China's enterprises also obtained the advantages of purchasing power resulting from"Going Out". By means of studying the influences of RMB effective exchange rate on China's FDI and ODI, investment characteristics, location and investment property of the investment countries (United States, Japan), and the ODI of the host country, in relation to the two different entities of enterprise and government, this paper makes some suggestions to help the enterprises seek more profits and assist the government to guide the development of economy more reasonably.On the basis of equilibrium rate of exchange, a study has been made on the influences of change in exchange rate on the FDI in this paper. The change in exchange rate not only effects the capitalized cost of FDI, but reflects the changes in economic situation of investment and host countries, and also bring profound impact on the choice of transnational investment. In this paper, Based on the theoretical and empirical analysis relevant to the influence of exchange rate on FDI, empirical studies on the distinctions of foreign capital intake in different locations and industries of host country due to change in exchange rate, the differences in the influences on the different multinational corporations by exchange rate and the impact on the choice of China's ODI caused by exchange rate are made. It is considered in this paper that the up valuation of exchange rate of host country will result in the decrease in FDI; the change in exchange rate impacts on the cost-oriented transnational investment greatly and relatively smaller on the investment made by market-oriented multinational corporations. On the basis of the empirical studies, a few policy suggestions are put forward in this paper so as to make for attracting FDI and guiding ODI.